Volume 42 | Number 3 Summer 2007
Legal Mercantile Evolution from the Twentieth Century to the Dawning of the Twenty-First Century
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I. Introduction
The need to establish commercial regulations in the foreign arena became manifest at the turn of the twentieth century and the beginning of the twenty-first century, mainly as a result of the problems brought about by internal regulations of nation states devoted to international trade. The nation states played an active and marked role in establishing their own commercial regulations in order to maintain a good balance in this area and to boost an incipient domestic industry. Nonetheless, all of these national laws proved that there was no adequate regulation for commercial transactions at a world-wide level. The lack of such international regulations was a reflection of the commercial policies in use by the nation states which, far from boosting commercial activities, restricted global commercial turnover and prevented foreign economies from profiting from comparative costs. In other words, they denied the possibility to acquire imported goods in areas where such goods were produced at lower costs.
Consequently, the methods or policies employed by national governments—such as restrictions of certain fields in domestic industries, the benefit of exports—the commercial privileges for dominant countries over colonies, the increase of customs barriers, and the direct control of imports and financial regulation—not only damaged and impoverished developing countries, but also became the main reason for initiating international trade regulations, with the fundamental purpose of developing alternative courses against governmental-driven measures.
The first attempts to establish the aforementioned commercial regulations were consolidated through the signing of bilateral and regional treaties, with the aim of reducing tariffs and other restrictions. However, in order for these agreements to come into effect and to avoid any kind of possible international discrimination—as they only included commercial benefits for the few signing countries—it was necessary for these treaties to be signed on multilateral grounds.
It was only after World War I, when the League of Nations was established in 1919, that a movement for the systematic regulation of international trade on a multilateral basis began. Although the League of Nations had limited duties in the economic field, it had no responsible body for commerce. Mercantile affairs were still conducted with traditional methods, that is, bilateral negotiations and international diplomatic conferences. The failure of the League of Nations—due to the United States’ refusal to become a member, even though its president had been the driving force behind the foundation of this society—had a deep impact on the negotiations of all international treaties that did not receive support from the United States, at the time one of the leading world powers.
This was the reason why the world economy experienced a profound, dramatic, and memorable crisis in the 1920s, which gave rise to, among other things, the outbreak of World War II, a conflict that might have been prevented had the economy succeeded in becoming both a thriving commercial growth and an expansionist world system. From 1920 to 1930, however, the most significant attempts to reinstate world economy were the Brussels Financial Conference, held in 1920 to establish the financial and economic principles for the governments to follow, and the Conference for the Abolition of Prohibitions and Restrictions on Imports and Exports, held in 1927, where some decisions were made concerning a reduction of tariffs and other trade barriers, along with the approval of an Agreement for the abolition of prohibitions and restrictions on imports and exports. However, the Conference failed, and the Agreement never really came into effect.
The Great Depression—a result of, among other things, low foreign trade growth, in contrast with high production taxes—led to an industrial contraction, a deep financial crisis, and an increase in protectionist measures assumed by the nation states. Protectionism was varied and widespread. The main industrialized countries increased tariffs and introduced quantitative restrictions and change controls, while bilateral agreements on clearing exchange multiplied, seemingly decreasing the possibility of establishing multilateral foundations to regulate foreign trade. Given the 1929 depression and financial crisis, governments adopted measures to safeguard their economies and products, neglecting the potential effects of such policies on other nations and creating new commercial restrictions, such as a direct quantitative control on imports, economic restrictions, preferential areas, bilateral commercial agreements, higher tariff barriers, strengthening of commercial areas with discriminatory protection, and establishment of direct subsidies to a number of industries destined to help national economies. This protectionism prevailed throughout the 1930s. In 1941, both the Unites States and the United Kingdom attempted to establish a series of basic principles to regulate world trade exchange after the war, but to no avail.
After World War II, nation states became aware of the impending need to prevent commercial restrictions. An international consensus was reached, declaring that to restore non-discriminatory commercial conditions, commerce should be liberalized and freed from the protectionist measures that had been in effect since the 1930s. The Nation Sates were also concerned with the devastating effects of World War II. In order to avoid another conflict of this magnitude, they decided to create a substitute for the “Society of Nations,” called the United Nations, whose tasks included international cooperation toward the solution of international financial problems.1
Having the reorganization of world economy as its main objective, the United Nations’ Monetary and Financial Conference, known as the Bretton Woods Conference, was held in 1944.2 Through the creation of three international bodies, a strategy was established to reorganize the world economy and foreign trade. These bodies were the International Monetary Fund (IMF), the International Bank for Reconstruction and Promotion—better known as the World Bank (WB)—and the International Trade Organization (ITO). Each of the bodies in this tripartite international economic system had a specific goal. The original idea contemplated specific tasks for each of these bodies:
The IMF would only deal with macroeconomic issues of the concerned country—that is, its budget deficit, its monetary policy, its inflation, its commercial deficit, and its foreign debt—thereby guaranteeing order and stability in international financial transactions.
The WB would seek to promote investment and would also deal with structural issues. It would not regulate the public expenditure, financial institutions, labour market, and commercial policies of each nation state.
The ITO was to lay out commercial rules to facilitate the liberalization of multilateral trade, including employment regulations, agreements on basic products, restrictive trade practices, foreign investment, and services.
On December 27, 1945, the Articles of Agreement of the IMF were signed.3 However, it was not until October 15 of that year that it became a specialized body of the United Nations. Its aims were to contribute to the creation of an adequate and more stable international monetary system by decreasing payment balance problems in participating countries.
The WB came into operation at the beginning of 1947. In its origins, the Bank had the purpose of funding the need for reconstruction of European countries after World War II, granting equal consideration and facilities for projects and resources devoted to development and reconstruction.
The negotiations for the creation of the ITO began at the United Nations Conference on Trade and Employment, held in 1947 in Havana, Cuba (Havana Conference).4 The Havana Charter, a product of this Conference, listed four main aspects for trade liberalization: (1) economic development and reconstruction; (2) equal conditions for market accessing, supply resources, and production means; (3) elimination of commercial barriers; and (4) cooperation within the International Trade Organization.5 The Havana Charter additionally established the General Agreement on Tariffs and Trade (GATT), to be regulated by the ITO. This document had been under negotiation since December 1945 to decrease and consolidate customs duties. The IMF was also to regulate this document, defining respective jurisdictions and, above all, safeguarding the IMF’s authority over macroeconomic and monetary issues. It also considered a division of responsibilities. The Final Act of the Havana Conference was signed by fifty-three countries, with an appendix of the resolutions taken by the Internal Commission of the International Trade Organization.6 The validity of this Final Act was conditioned to an international ratification by the countries comprising at least eighty-five percent of all world trade.7
Ratification by the United States was decisive. Yet Congress, which appeared to be the party most interested in establishing the ITO, refused to sign the Charter because it was not liberal enough.8 As a result, some governments, unwilling to submit their regulations to an organization which could have power over their trade regulations, did not ratify the Act either. The Charter to establish the ITO was not ratified by the requisite number of countries, and all attempts to establish a multilateral trading organization were abandoned.